Winter is coming but Germany's Scholz leaves Canada with no promises for LNG
25/08/2022 19:49
By Nia Williams and Steve Scherer
OTTAWA, Aug 25 (Reuters) - German Chancellor Olaf Scholz
visited Canada this week, hoping a democratic G7 ally would one
day ship his country liquefied natural gas to replace Russian
gas imports, but the response he got from the world's
fifth-largest producer was not to count on it.
Environmental and regulatory hurdles to gas pipeline
construction are a stumbling block to new LNG terminals on
Canada's Atlantic coast, and support for the idea in Ottawa has
been cooling. As recently as May, Canada said it was in talks
with two companies to possibly accelerate LNG projects there
that ship could gas to Europe within a few years.
Those projects involved Repsol REP.MC , which could
possibly retool an LNG intake facility in New Brunswick, and
Pieridae Energy PEA.TO which had proposed the Goldboro LNG
facility in Nova Scotia.
Prime Minister Justin Trudeau's Liberal government is now
publicly questioning whether those terminals can be profitable
and built fast enough to make a difference to Europe's long-term
supply difficulties.
Days before Scholz arrived, Canadian Natural Resources
Minister Jonathan Wilkinson told Reuters the government now
thought the best solution was to export hydrogen, not
LNG. urn:newsml:reuters.com:*:nL8N2ZV34A
Trudeau reinforced that message during a joint press
conference with Scholz on Monday, saying "there has never been a
strong business case" for LNG terminals on the east
coast. urn:newsml:reuters.com:*:nL1N2ZY18M
Germany wants to wean itself off Russian gas by 2024. It
would take at least that long for new Canadian LNG terminals to
come online, largely because of the need for expanded pipeline
capacity to get western Canadian gas to the east coast.
Building new pipelines in Canada and the United States has
proved difficult due to fierce environmental opposition and high
regulatory hurdles. TC Energy's TRP.TO Energy East and
Keystone XL oil pipeline projects were both cancelled after
years of delays.
The gas pipeline network, operated by TC Energy and Enbridge
Inc ENB.TO , runs through the northeastern United States to
reach Canada's east coast, with the TC Energy section already
operating at capacity.
"You'd have to be expanding pipelines outside of Canada in
New England, and it's not the most friendly region for pipeline
development," said Wood Mackenzie analyst Dulles Wang said.
In a statement, TC Energy said any project would require
broad support, including from indigenous groups and communities.
Enbridge said it was focused on LNG projects underway on the
U.S. Gulf Coast and Canadian west coast.
On a July earnings call, Repsol Chief Executive Josu Jon
Imaz said the company would need a buyer to commit to a 15- to
20-year offtake agreement for the gas, as well as new pipeline
infrastructure and tolling agreements to get the gas from
western Canada to the Atlantic coast.
The climate change fight is another wrinkle: Germany aims to
reach net-zero carbon emissions by 2045, so some analysts warn
new LNG terminals could become stranded assets. Ottawa also
wants to ensure any new project fits within Canada's goal to
reach net-zero emissions by 2050, noted Keean Nembhard, press
secretary for Wilkinson.
"It is not an easy game; there are a lot of difficulties to
arrive to this scenario," Imaz said.
'HONEST INTEREST'
Trudeau did leave the door slightly open to new terminals in
addition to two on British Columbia's Pacific coast that are
scheduled to start operating in 2025 and 2027, saying that was
"doable" if there is "a worthwhile business case".
Canada is "eager" to help Europe on energy, said Wilkinson's
spokesman Nembhard, but "the onus of establishing a business
case to go forward with proposed projects remains with the
company".
Fighting climate change was a cornerstone of Trudeau's
election campaign last year, but oil and gas accounts for about
5% of Canadian GDP and the country has some of the largest
fossil fuel reserves in the world.
"The government itself is very split between focusing on
decarbonization and supporting another fossil fuel project, and
that's the problem," said an industry source with knowledge of
the discussions about developing east coast LNG.
Canada is privately supporting Atlantic LNG development in
ongoing talks, a second industry source with knowledge of the
discussions said. Some German utilities have shown a very
preliminary interest in offtake contracts, the source added.
"There's honest interest" from the Canadian government,
which is "trying to help", the source said.
(Reporting by Nia Williams in British Columbia and Steve
Scherer in Ottawa, with additional reporting by Isla Binnie in
Madrid.)
((steve.scherer@thomsonreuters.com; +1-647-480-7889;))